How will Skipton's interest rates change affect you?

What can homebuyers do about the Skipton rule change and are mortgage rates
elsewhere on the way up? Ian Cowie asked the experts.

Tens of thousands of homeowners are facing an extra £2,000 interest on their mortgages every year after Skipton Building Society tore up its contract with customers.

Q Where can homebuyers find cheaper deals than the new Skipton standard variable rate (SVR) of 4.95pc?

A Ray Boulger, of mortgage brokers John Charcol, said lifetime tracker deals currently offer the best value. For example, Mansfield Building Society charges 1.99 percentage points above the Bank rate, giving a current cost of 2.49pc for an arrangement fee of £999 on loans up to 75pc of property value.

But this is only available on mortgages up to £300,000. Woolwich offers lifetime tracker mortgages of up to £1m with costs capped at 2.13 percentage points above the Bank rate, giving a current pay rate of 2.63pc. The maximum loan to value is 70pc and the fee is £999, including legal and valuation costs.

A Yes, according to David Hollingworth of mortgage brokers London & Country. "Smaller building societies such as Marsden and Kent Reliance have already raised rates in recent months and other lenders are bound to follow suit because of intense competition for funding from savers' deposits and the cost of the levy to pay for the savers' compensation scheme," he said. "Bigger banks are not under the same pressure because they enjoy benefits of scale."

Q Do other lenders tie their SVR to the Bank rate and will they break this link?

A Cheltenham & Gloucester, Intelligent Finance and Halifax – all now part of Lloyds Banking Group – and Nationwide Building Society are among the minority who link some SVRs to the Bank rate.

They are not expected to change this. Mr Boulger explained: "Nationwide has already taken action so that mortgages arranged since last spring are not linked to the Bank rate. Instead, they have a SVR of 3.99pc which the building society can move up or down as it likes. No change is likely at Lloyds because it is Government-controlled and political consequences of doing so would be horrendous."

Q Anything else homebuyers should consider?

A Skipton's new SVR takes effect on March 1. About 100,000 homebuyers – including 64,000 who are on or will revert to its SVR – have 90 days in which to switch elsewhere without having to pay its £125 redemption fee. London & Country offers fee-free advice, funded by commission, while John Charcol offers initial consultation free but charges a minimum fee of £450 after that.